Why buy when prices aren’t rising?

House prices may have recovered some of the ground lost during the recession* but on one measure at least, buying is becoming more – not less – affordable.

The two most common measures of affordability are a) the price of property relative to annual income and b) the cost of monthly mortgage payments as a proportion of monthly income. On both measures, property in Scotland is more affordable than most other parts of the UK.

But both measures are flawed in an important way. They don’t take in to account the cost of the alternative – which for most of us means renting. After all, we have to live somewhere and if we are not paying a mortgage, then we are almost certainly paying rent.

When you look at it like that, it is obvious that an increase in rent without any change in house prices makes buying a relatively more affordable option.

And that is exactly what has been happening over the last four years.

The latest data from the Scottish Government shows that average rents in Scotland between September 2010 and the same month this year rose by around 11%. That is just a smidgen less than general inflation.

But compare the rise in rents to house prices over the same period. Average selling prices over those four years in the west of Scotland fell by around 2.5% – you can see our analysis of average selling prices in the west of Scotland since 1999 here.

In other words, compared to renting, buying has become steadily more affordable. No wonder that a recent report from property website Zoopla concluded that Glasgow is among the most affordable locations in the UK. Indeed, the site estimates that mortgage payments are now lower than the average rent.

In short, if buying is no more expensive that renting, why rent?

That is the fundamental calculation underlying current property prices. It goes a long way to explain the continued demand for property to buy even in an economic environment when prices are unlikely to rise sharply for many years to come.

Of course, the increase in average rents and the relative resilience of property prices reflects a fundamental imbalance of demand and supply for homes. But increasing the supply of homes is not something that can be done quickly or easily.

* Average selling prices in west central Scotland had fallen to £112,000 by early 2013. Since then, they have recovered to reach £127,000 by the start of October this year – a rise of 13% in 18 months. Nevertheless, they remain around 11% below their peak of £143,000 recorded in mid 2007.